Cost Benefit Analysis Notes for October 6

Main points

Both Frank and Nussbaum think that there is something obvious about CBA. And both are, nonetheless, critical of its use in practice. Frank thinks that the difficulties with measuring benefits means that, in practice, CBA emphasizes costs over benefits, leading to overly conservative results. Nussbaum seems to object to the idea of CBA in principle. But, in my opinion, when you get down to it, her point is quite similar to Frank’s: in practice, using CBA would lead to undesirable results that are logically separable from CBA itself. In Nussbaum’s case, the undesirable consequences stem from paying insufficient attention to avoiding what she calls tragic questions. (Since she thinks that we should use CBA in deciding what to do, she can’t think that her principled objection is truly devastating.)

Nussbaum also argues that CBA is inappropriate when one of the alternatives being compared involves violating rights (or, if you like, serious wrongdoing). You can’t just deprive someone of the right to free speech, the right to vote, property rights, and so on simply because the benefits of doing so outweigh the costs.

CBA and markets

Professor Brown noted that CBA is used to emulate the results that markets would get. It’s used when markets cannot work, as with the environment or health care.

As such, I would think that many of the objections levied against CBA also apply to markets. For instance, if willingness to pay is an objectionable way of deciding what the costs and benefits of a policy are, then there is presumably something dicey about using willingness to pay as a measurement of someone’s well-being in an actual market.

What is a market, after all, but a bunch of people selling at the price they’re willing to accept to others at a price they are willing to pay?